[Congressional Record Volume 159, Number 46 (Tuesday, April 9, 2013)]
[Senate]
[Pages S2502-S2505]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DURBIN (for himself, Mr. Blumenthal, Mrs. Boxer, Mr. 
        Merkley, and Mr. Whitehouse):
  S. 673. A bill to amend the Truth in Lending Act to establish a 
national usury rate for consumer credit transactions; to the Committee 
on Banking, Housing, and Urban Affairs.
  Mr. DURBIN. Mr. President, after the financial crisis of 2008 we 
learned that predatory lending hurts more than just families who lost 
money. Predatory

[[Page S2503]]

lending can affect entire communities and often targets the most 
vulnerable in our society--low-income families and seniors.
  Under Wall Street reform we addressed predatory mortgage practices 
and granted the Consumer Financial Protection Bureau the authority to 
supervise nonbank lenders, including payday lenders. We know who these 
payday folks are. I know them because their businesses are located a 
few blocks from where I live in Springfield, IL, on Macarthur 
Boulevard--title loans, payday loans. However, we failed to cap once 
and for all the annual interest rate that predatory payday lenders can 
charge for a loan.
  In 2012 payday loan volume reached an estimated $45 billion for 
storefront and online loans. This does not include deposit advance 
loans that banks make to consumers every day.
  If we look a bit deeper, we find that nearly 76 percent of payday 
loans are made to pay off a previous payday loan. It is a vicious 
cycle. Someone borrows some money, then they cannot pay it back with 
high interest rates, and they borrow more--deeper and deeper in debt. 
Fifty percent of payday borrowers ultimately default on their loans.
  With numbers like these, we can only assume payday lenders' profit 
depends on families rolling their payday loan over eight to nine 
times--racking up new fees every single time.
  Predatory lenders should not be allowed to pad their pockets with the 
hard-earned money of families that are barely getting by. These are 
families who are not even able to survive paycheck to paycheck.
  That is why I am introducing the Protecting Consumers from 
Unreasonable Credit Rates Act. I wish to thank my colleagues--Senators 
Blumenthal, Boxer, Merkley, and Whitehouse--for their cosponsorship of 
this bill and their commitment to protect consumers from predatory 
lending practices.
  This bill would establish a 36-percent annual interest rate cap for 
all types of consumer credit--a cap that is supported by 100 years of 
history according to a new report released by the National Consumer Law 
Center.
  That is the same Federal cap that is currently in place for loans 
marketed to military servicemembers and their families.
  Why would we protect military service families from predatory lending 
and no one else? I will tell you why. We found out that many of them in 
the military ran into financial difficulties from time to time, and the 
payday lenders--the title loans and the rest of them--were camping out 
outside of military facilities anxious to loan members of the military 
the money they needed to get by until the next payday. Many of our 
soldiers got so deeply in debt to payday loans they had to leave 
military service. They just could not keep up with it. So we passed a 
law that said we are going to protect military families from this 
exploitation. Our soldiers and sailors, airmen and marines are worth 
that much more to us that we are going to protect them.
  Well, there is an obvious question: Why are we not protecting 
everybody? If this kind of exploitation is wrong when it comes to 
military families, why is it not wrong for the rest of America? It 
surely is. We should expand the law that curbed payday, car title, and 
tax refund lending around military bases to include all types of credit 
for all borrowers. If a lender cannot make money on a 36-percent APR, 
maybe the loan should not have been made in the first place.
  Fifteen States and the District of Columbia have already enacted laws 
that protect homeowners from high-cost loans, and 34 States and the 
District of Colombia have limited annual interest rates to 36 percent 
or less for one or more types of consumer credit. But there is a 
problem with the State-by-State approach: Many of these State laws are 
riddled with loopholes. Out-of-State lenders evade these State caps. 
Cash-strapped customers are then subjected to 400 percent annual 
interest rates for payday loans, on average, and 300 percent for car 
title loans, on average--400 percent interest? Our bill would require 
all lending to conform to the 36-percent APR limit, thereby eliminating 
the loopholes that have allowed predatory practices to flourish in many 
States around the country.
  Let me be clear. I understand that sometimes families fall on hard 
times. They need a loan to make ends meet. They are desperate. Most of 
us have been there at one time or another in our lives. That is why I 
have included in this bill the flexibility for responsible lenders to 
replace payday loans with reasonably priced, small-dollar loan 
alternatives. The bill allows lenders to exceed the 36-percent cap for 
one-time application fees that cover the cost of setting up a new 
customer account and a processing cost, such as late charges and 
insufficient funds fees. I urge more institutions to offer small-dollar 
loans with consumer protections, including rates below 36 percent.
  We know it can be done because banks and credit unions--many of 
them--are offering those loans.
  I would also like to talk about a new type of payday lending--the 
online payday loan. Senator Merkley of Oregon and Senator Tom Udall of 
New Mexico are leading the effort to crack down on these types of 
lenders who use the Internet to evade State law. Their bill, called the 
Safe Lending Act, would address online payday lending, such as hiding 
behind layers of anonymously registered Web sites and so-called lead 
generators. The bill would allow consumers to cancel a debit and 
prohibit payday lenders from circumventing State usury laws. We need 
more effective enforcement on online payday lenders. The Safe Lending 
Act would do it.
  Another type of payday lending that I am afraid is on the rise is 
bank payday lending. Several banks offer deposit advance loans, which 
closely resemble the structure of payday loans, with up to 365 percent 
interest rates and short-term balloon payments.
  Earlier this year, Senators Blumenthal and I wrote a letter to the 
Federal Reserve, OCC, and the FDIC urging them to prohibit banks from 
offering predatory payday loans. Today, a petition signed by 157,000 
Americans will be delivered to the same regulators calling on then to 
ban banks from offering payday loan products. I hope they do.
  My first mentor in politics was the late Senator Paul Douglas of 
Illinois. He was a Ph.D. in economics who served here from 1948 to 
1966. I met him at the end of his career when I was a college student. 
He wrote:

       Compound the camouflaging of credit by loading on all sorts 
     of extraneous fees, such as exorbitant fees for credit life 
     insurance, excessive fees for credit investigation, and all 
     sorts of loan processing fees which rightfully should be 
     included in the percentage rate statement so that any 
     percentage rate quoted is meaningless and deceptive.

  Senator Douglas said that 50 years ago. The name of the fees may have 
changed over time, but the goal of nickel-and-diming families out of 
their hard-earned money, unfortunately, has not changed.
  By instituting a 36-percent cap on annual interest rates, the 
Protecting Consumers from Unreasonable Credit Rates Act would eliminate 
products that are predatory by their nature. The bill is supported by 
more than 40 consumer groups. They include Americans for Financial 
Reform, the Center for Responsible Lending, the Consumer Federation of 
America, and the National Consumer Law Center.
  I ask unanimous consent to have printed in the Record a letter from 
these organizations in support of this legislation.
                                                    April 9, 2013.
     Re Protecting Consumers from Unreasonable Credit Rates

     Hon. Richard J. Durbin,
     Hart Senate Building,
     Washington, DC.
       Dear Senator Durbin: Thank you for introducing the 
     ``Protecting Consumers from Unreasonable Credit Rates Act of 
     2013,'' which would extend the 36 percent usury APR cap for 
     military families enacted in the Military Lending Act of 2006 
     to all consumers. A fair rate cap will protect consumers and 
     curb abuses in the high-cost small dollar loan market. The 36 
     percent rate cap set by your legislation would permit 
     responsible lending to consumers with less-than-perfect 
     credit while restraining harmful terms.
       Currently, consumers pay triple-digit rates for car title 
     and payday loans (including those offered at traditional 
     storefronts, online, and by banks). A large body of research 
     has demonstrated that these products are structured to create 
     a long-term debt trap that drains consumers' bank accounts. 
     Indeed, the lack of underwriting, high fees, short loan 
     terms, single balloon payment, and access to a borrower's 
     checking account

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     as collateral ensure that most borrowers have no choice but 
     to take out additional loans to pay off the initial payday or 
     car title loan. A properly structured federal usury cap puts 
     all creditors on a level playing field without undermining 
     any additional consumer protections in the states.
       Although many states cap rates for some forms of credit, 
     banks can undermine these protections by exporting their weak 
     home-state limits on credit costs to other states across the 
     country. It is vitally important for Congress to set the 
     outside limit on the cost-of-credit to curb abusive lending.
       We enthusiastically support the Protecting Consumers from 
     Unreasonable Credit Rates Act of 2013. For more information, 
     please contact Tom Feltner, director of financial services, 
     Consumer Federation of America at (202) 618-0310 or 
     [email protected].
           Sincerely,
       Alabama Appleseed, Alabama Arise, Americans for Financial 
     Reform, Arkansans Against Abusive Payday Lending, Arkansas 
     Community Organizations, California Reinvestment Coalition, 
     Southwest Center for Economic Integrity (AZ), Center for 
     Responsible Lending, Citizen Action Illinois, Coalition of 
     Religious Communities (Utah), Consumer Action, Consumer 
     Assistance Council, Inc. (MA).
       Consumer Federation of America, Consumers for Auto 
     Reliability and Safety (CA), Consumers Union, Economic 
     Fairness Oregon, Demos, Green America, Florida Consumer 
     Action Network, Jesuit Social Research Institute, Loyola 
     University, New Orleans Kentucky Coalition for Responsible 
     Lending, Mississippi Center for Justice, Monsignor John Egan 
     Campaign for Payday Loan Reform (IL), NAACP.
       National Association of Consumer Advocates, National 
     Community Reinvestment Coalition, National Consumer Law 
     Center, on behalf of its low income clients, National 
     People's Action, Neighborhood Economic Development Advocacy 
     Project (NY), New Jersey Citizen Action, Maryland CASH 
     Campaign, Maryland Consumer Rights Coalition, Project IRENE 
     (IL), RAISE Kentucky, Reinvestment Partners (NC), Sargent 
     Shriver National Center on Poverty Law (IL), South Carolina 
     Appleseed Legal Justice Center, Southern Poverty Law Center, 
     Virginia Citizens Consumer Council, Virginia Poverty Law 
     Center, Woodstock Institute (IL).

  Mr. DURBIN. Mr. President, we can allow American consumers today to 
keep more of their hard-earned money by establishing a reasonable fee 
and an annual interest rate cap, combating abuses by Internet payday 
lenders, and eliminating bank payday loans. Families and their 
communities are sure to benefit by saving more and putting more of 
their earnings back into the economy.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 673

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Protecting Consumers from 
     Unreasonable Credit Rates Act of 2013''.

     SEC. 2. FINDINGS.

       Congress finds that--
       (1) attempts have been made to prohibit usurious interest 
     rates in America since colonial times;
       (2) at the Federal level, in 2006, Congress enacted a 
     Federal 36 percent annualized usury cap for service members 
     and their families for covered credit products, as defined by 
     the Department of Defense, which curbed payday, car title, 
     and tax refund lending around military bases;
       (3) notwithstanding such attempts to curb predatory 
     lending, high-cost lending persists in all 50 States due to 
     loopholes in State laws, safe harbor laws for specific forms 
     of credit, and the exportation of unregulated interest rates 
     permitted by preemption;
       (4) due to the lack of a comprehensive Federal usury cap, 
     consumers annually pay approximately $23,700,000,000 for 
     high-cost overdraft loans, as much as $8,100,000,000 for 
     storefront and online payday loans, and additional amounts in 
     unreported revenues from bank direct deposit advance loans 
     and high-cost online installment loans;
       (5) cash-strapped consumers pay on average 400 percent 
     annual interest for payday loans, 300 percent annual interest 
     for car title loans, up to 3,500 percent for bank overdraft 
     loans, and triple-digit rates for online installment loans;
       (6) a national maximum interest rate that includes all 
     forms of fees and closes all loopholes is necessary to 
     eliminate such predatory lending; and
       (7) alternatives to predatory lending that encourage small 
     dollar loans with minimal or no fees, installment payment 
     schedules, and affordable repayment periods should be 
     encouraged.

     SEC. 3. NATIONAL MAXIMUM INTEREST RATE.

       Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et 
     seq.) is amended by adding at the end the following:

     ``SEC. 140B. MAXIMUM RATES OF INTEREST.

       ``(a) In General.--Notwithstanding any other provision of 
     law, no creditor may make an extension of credit to a 
     consumer with respect to which the fee and interest rate, as 
     defined in subsection (b), exceeds 36 percent.
       ``(b) Fee and Interest Rate Defined.--
       ``(1) In general.--For purposes of this section, the fee 
     and interest rate includes all charges payable, directly or 
     indirectly, incident to, ancillary to, or as a condition of 
     the extension of credit, including--
       ``(A) any payment compensating a creditor or prospective 
     creditor for--
       ``(i) an extension of credit or making available a line of 
     credit, such as fees connected with credit extension or 
     availability such as numerical periodic rates, annual fees, 
     cash advance fees, and membership fees; or
       ``(ii) any fees for default or breach by a borrower of a 
     condition upon which credit was extended, such as late fees, 
     creditor-imposed not sufficient funds fees charged when a 
     borrower tenders payment on a debt with a check drawn on 
     insufficient funds, overdraft fees, and over limit fees;
       ``(B) all fees which constitute a finance charge, as 
     defined by rules of the Bureau in accordance with this title;
       ``(C) credit insurance premiums, whether optional or 
     required; and
       ``(D) all charges and costs for ancillary products sold in 
     connection with or incidental to the credit transaction.
       ``(2) Tolerances.--
       ``(A) In general.--With respect to a credit obligation that 
     is payable in at least 3 fully amortizing installments over 
     at least 90 days, the term `fee and interest rate' does not 
     include--
       ``(i) application or participation fees that in total do 
     not exceed the greater of $30 or, if there is a limit to the 
     credit line, 5 percent of the credit limit, up to $120, if--

       ``(I) such fees are excludable from the finance charge 
     pursuant to section 106 and regulations issued thereunder;
       ``(II) such fees cover all credit extended or renewed by 
     the creditor for 12 months; and
       ``(III) the minimum amount of credit extended or available 
     on a credit line is equal to $300 or more;

       ``(ii) a late fee charged as authorized by State law and by 
     the agreement that does not exceed either $20 per late 
     payment or $20 per month; or
       ``(iii) a creditor-imposed not sufficient funds fee charged 
     when a borrower tenders payment on a debt with a check drawn 
     on insufficient funds that does not exceed $15.
       ``(B) Adjustments for inflation.--The Bureau may adjust the 
     amounts of the tolerances established under this paragraph 
     for inflation over time, consistent with the primary goals of 
     protecting consumers and ensuring that the 36 percent fee and 
     interest rate limitation is not circumvented.
       ``(c) Calculations.--
       ``(1) Open end credit plans.--For an open end credit plan--
       ``(A) the fee and interest rate shall be calculated each 
     month, based upon the sum of all fees and finance charges 
     described in subsection (b) charged by the creditor during 
     the preceding 1-year period, divided by the average daily 
     balance; and
       ``(B) if the credit account has been open less than 1 year, 
     the fee and interest rate shall be calculated based upon the 
     total of all fees and finance charges described in subsection 
     (b)(1) charged by the creditor since the plan was opened, 
     divided by the average daily balance, and multiplied by the 
     quotient of 12 divided by the number of full months that the 
     credit plan has been in existence.
       ``(2) Other credit plans.--For purposes of this section, in 
     calculating the fee and interest rate, the Bureau shall 
     require the method of calculation of annual percentage rate 
     specified in section 107(a)(1), except that the amount 
     referred to in that section 107(a)(1) as the `finance charge' 
     shall include all fees, charges, and payments described in 
     subsection (b)(1) of this section.
       ``(3) Adjustments authorized.--The Bureau may make 
     adjustments to the calculations in paragraphs (1) and (2), 
     but the primary goals of such adjustment shall be to protect 
     consumers and to ensure that the 36 percent fee and interest 
     rate limitation is not circumvented.
       ``(d) Definition of Creditor.--As used in this section, the 
     term `creditor' has the same meaning as in section 702(e) of 
     the Equal Credit Opportunity Act (15 U.S.C. 1691a(e)).
       ``(e) No Exemptions Permitted.--The exemption authority of 
     the Bureau under section 105 shall not apply to the rates 
     established under this section or the disclosure requirements 
     under section 127(b)(6).
       ``(f) Disclosure of Fee and Interest Rate for Credit Other 
     Than Open End Credit Plans.--In addition to the disclosure 
     requirements under section 127(b)(6), the Bureau may 
     prescribe regulations requiring disclosure of the fee and 
     interest rate established under this section.
       ``(g) Relation to State Law.--Nothing in this section may 
     be construed to preempt any provision of State law that 
     provides greater protection to consumers than is provided in 
     this section.
       ``(h) Civil Liability and Enforcement.--In addition to 
     remedies available to the consumer under section 130(a), any 
     payment compensating a creditor or prospective creditor, to 
     the extent that such payment is a transaction made in 
     violation of this section, shall be null and void, and not 
     enforceable by any party in any court or alternative dispute 
     resolution forum, and the creditor or any subsequent holder 
     of the obligation shall

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     promptly return to the consumer any principal, interest, 
     charges, and fees, and any security interest associated with 
     such transaction. Notwithstanding any statute of limitations 
     or repose, a violation of this section may be raised as a 
     matter of defense by recoupment or setoff to an action to 
     collect such debt or repossess related security at any time.
       ``(i) Violations.--Any person that violates this section, 
     or seeks to enforce an agreement made in violation of this 
     section, shall be subject to, for each such violation, 1 year 
     in prison and a fine in an amount equal to the greater of--
       ``(1) 3 times the amount of the total accrued debt 
     associated with the subject transaction; or
       ``(2) $50,000.
       ``(j) State Attorneys General.--An action to enforce this 
     section may be brought by the appropriate State attorney 
     general in any United States district court or any other 
     court of competent jurisdiction within 3 years from the date 
     of the violation, and such attorney general may obtain 
     injunctive relief.''.

     SEC. 4. DISCLOSURE OF FEE AND INTEREST RATE FOR OPEN END 
                   CREDIT PLANS.

       Section 127(b)(6) of the Truth in Lending Act (15 U.S.C. 
     1637(b)(6)) is amended by striking ``the total finance charge 
     expressed'' and all that follows through the end of the 
     paragraph and inserting ``the fee and interest rate, 
     displayed as `FAIR', established under section 141.''.
                                 ______